Exhibit 4.1
AMENDMENT AND LIMITED WAIVER
THIS AMENDMENT AND LIMITED WAIVER (this "Amendment"), dated as of October 10,
2008 (the "Amendment Date"), is made
BY AND BETWEEN:
PALA INVESTMENTS HOLDINGS LIMITED, of 00 Xxxxxx Xxxxxx, Xx Xxxxxx,
Xxxxxx, XX0 0XX (the "Lender");
AND:
ALDEROX, INC. (formerly known as Reclamation Consulting and
Applications, Inc.), a company organized under the laws of the State of
Colorado, of 000 Xxxxx Xxxxxxxx, Xxxxx X, Xxx Xxxxxxxx, XX 00000 (the
"Borrower").
WHEREAS, the Lender and the Borrower are parties to a Secured Convertible
Debenture, dated as of December 12, 2007 (the "Original Debenture"), pursuant to
which the Lender loaned the Borrower Three Million Dollars ($3,000,000) and,
under the terms and subject to the conditions set forth therein, provided for
the potential further loan of Two Million Dollars ($2,000,000);
WHEREAS, pursuant to an Omnibus Amendment, dated as of March 28, 2008 (the
"First Omnibus Amendment"), the Lender loaned the Borrower an additional Two and
One-half Million Dollars ($2,500,000);
WHEREAS, pursuant to a Second Omnibus Amendment, dated as of August 1, 2008 (the
"Second Omnibus Amendment"), the Lender loaned the Borrower an additional Seven
Hundred Thousand Dollars ($700,000) and, under the terms and subject to the
conditions set forth therein, provided for the potential further loan of Three
Hundred Thousand Dollars ($300,000) (the Original Debenture, as amended by such
First Omnibus Amendment and Second Omnibus Amendment, the "Debenture");
WHEREAS, the Borrower has notified the Lender of certain breaches of the
Debenture arising out of the Borrower's failure to file federal and state tax
returns as required by law and the Borrower's alleged insolvency (which the
Borrower disputes) and has requested that the Lender waive any defaults arising
therefrom; and
WHEREAS, the Lender is willing to waive any such defaults, subject to the terms
and conditions set forth in this Amendment.
NOW, THEREFORE, THIS AGREEMENT WITNESSES that in consideration of the premises
and the mutual covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 1 of 10
1. DEFINITIONS
Unless a definition is provided for a capitalized term in this Amendment, each
such term shall have the meaning provided to it in the Debenture.
2. INTERPRETATION
The provisions of Section 2 of the Debenture shall apply to this Amendment as if
set forth herein, in each case with references to "this Agreement" being
replaced with "this Amendment."
3. THE AMENDMENTS
3.1 AMENDMENTS TO THE DEBENTURE
The follow amendment is hereby made to the Debenture:
3.1.1 The term "Conversion Price" is amended in its
entirety to provide as follows:
""Conversion Price" means, with respect to the
Principal amount of the First Tranche, Second
Tranche, Third Tranche, Fourth Tranche and Fifth
Tranche, $0.057 per share, provided that if Borrower,
at any time while the Principal is outstanding, (i)
pays a stock dividend on its common stock, (ii)
subdivides outstanding shares of common stock into a
larger number of shares, or (iii) combines
outstanding shares of common stock into a smaller
number of shares, then in each such case the
applicable Conversion Price shall be adjusted by
multiplying (a) such Conversion Price in effect
immediately prior to such event, by (b) a fraction of
which the numerator shall be the number of shares of
common stock outstanding immediately before such
event and of which the denominator shall be the
number of shares of common stock outstanding
immediately after such event;"
3.2 LIMITED AMENDMENT
Any future reference to the Debenture and any document or instrument delivered
in connection therewith shall, from and after the date of this Amendment, be
deemed to be a reference to the Debenture as modified by this Amendment. Except
as expressly modified by this Amendment, the Debenture shall continue to be and
remain in full force and effect in accordance with its terms and the Borrower
hereby reaffirms its obligations under each of the Debenture Agreements.
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 2 of 10
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE BORROWER
The Borrower hereby represents and warrants to the Lender that, except as
provided on Annex A hereto, each of the representations and warranties set forth
in Section 5.1 of the Debenture and in Section 3 of the Patent and Trademark
Security Agreement are true and correct as of the Amendment Date, in each case
with references to "this Agreement" referring to the Debenture as amended by
this Amendment.
5. LIMITED WAIVER
The Lender hereby waives any remedies it may have under the Debenture arising
out of the Borrower's failure to file its federal and state tax returns as
required by law prior to the Amendment Date and any insolvency of the Borrower
prior to the Amendment Date. For the avoidance of doubt, any future state of
insolvency shall be a grounds for a separate Event of Default, which is not
waived hereby; provided, however, that the Lender agrees not to assert any
remedies it may have under the Debenture or the other Debenture Agreements
relating to an Event of Default resulting from the Borrower's being or becoming
insolvent prior to the date 30 days from the date of this Amendment (it being
understood that the Lender reserves all of its rights with respect to the other
events referred to as Events of Default in Section 7.1.5 of the Debenture during
such period).
6. OTHER AGREEMENTS; GENERAL
6.1 COUNTERPART AND FAX EXECUTION
This Amendment may be executed in two or more counterparts and by fax
transmission, each of which will be deemed to be an original and all of which
will constitute one agreement, effective as of the date given above.
6.2 GOVERNING LAW
The Debenture shall be governed by the law of the State of California, without
regard to applicable principles of conflicts of laws thereof.
6.3 COSTS AND EXPENSES
The Borrower agrees to pay all reasonable costs and expenses of the Lender
(including legal fees) on demand relating to the amendment or supplement of the
Lender's security filings and/or any such additional filings in respect of the
Collateral necessary to reflect the Borrower's current legal name and to
otherwise perfect and insure the continuous perfection and priority of the
Lender's security interest therein granted under the Debenture in a manner
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 3 of 10
reasonably satisfactory to the Lender. For the avoidance of doubt, a breach of
the covenants contained in this section shall constitute an Event of Default
under the Debenture.
6.4 LIMITATION ON SHARES DELIVERABLE
For any conversion of the Loans or exercise of the Warrants prior to the earlier
of (i) March 31, 2009 and (ii) the Share Increase Date (as defined below), the
number of shares of the Borrower's common stock receivable upon such conversion
or exercise shall not exceed 112,227,673 shares in the aggregate. The Borrower
agrees to use its best efforts to have its authorized share capital increased
(the "Share Increase") such that it is able to fully comply with the covenants
set forth in Section 6.1.18 and Section 6.1.19 of the Debenture (without regard
to the cap set forth in the first sentence of this Section) as well as satisfy
its obligations to third parties holding options, warrants, convertible
instruments or other share rights. The date such increase is effected is the
"Share Increase Date." Prior to the Share Increase Date, the covenants set forth
in Section 6.1.18 and Section 6.1.19 of the Debenture shall be subject to the
cap set forth in the first sentence of this Section. If the Borrower fails to
use its best efforts to have its authorized share capital increased as provided
in this Section or if the Share Increase Date does not occur by April 1, 2009,
it shall be an Event of Default under the Debenture.
6.5 CONSENT TO SHARE INCREASE.
The Lender consents to Borrower amending its Articles of Incorporation as
necessary to implement the Share Increase and agrees to vote any shares of the
Borrower's common stock which the Lender may own as necessary to approve the
amendment to the Articles of Incorporation implementing the Share Increase. For
the avoidance of doubt, the Lender shall not be obligated by this Section 6.5 to
vote for any amendment to the Articles including provisions other than the Share
Increase.
SIGNATURES ON NEXT PAGE
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 4 of 10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
Amendment Date.
LENDER
PALA INVESTMENTS HOLDINGS LIMITED
/s/ X. Xxxxxxxxx
----------------------------------------
X. Xxxxxxxxx Director
BORROWER
ALDEROX, INC.,
a Colorado corporation
/s/ Xxxxxxx Xxxxxx
---------------------------------------
By: Xxxxxxx X. Xxxxxx
Its: Chief Executive Officer
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 5 of 10
ANNEX A
SCHEDULE OF EXCEPTIONS
5.1.1 Inventory and equipment of the Borrower is located at the following
additional locations:
Alderox, Inc. (shop)
0000 Xxxxx Xxxxxxx
Xxx Xxxxxxxx, XX 00000
Alderox, Inc. (production facility)
0000 X. Xxxxxx Xxxxx Xxxxx 0
Xxxxxxx, XX 00000
5.1.13 There are securities not yet set forth in the Public Record included in
the capitalization chart, set forth below under 5.1.14 of this Annex A.
5.1.14 Schedule E included in the Original Debenture does not reflect the
current authorized capital stock of the Borrower. The authorized capital stock
of the Borrower as of September 30, 2008 is set out below, and there have been
not any material changes since September 30, 2008:
CAPITALIZATION AS OF 9/30/08
CONVERSION -------------------------
PRICE $ SHARES NOTES
--------- ---------- ------------ -------
Outstanding Shares of Common Stock $ -- 65,690,196 [1]
Convertible Notes / Debentures
Pala $ 0.057 6,667,099 116,966,645 [2]
Canvasback $ 0.050 1,469,074 29,381,481 [3]
Xxxx $ 0.132 538,148 4,073,982 [4]
Xxxxxxx $ 0.300 553,753 1,845,845
Shares of Common Stock to be Issued $ 0.140 100,000 714,286 [2], [5]
Currently Exercisable Stock Options & Warrants -- 17,957,175 [6]
Allocated but Unvested Options -- 7,144,444 [7]
TOTAL $ 9,328,075 243,774,054
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 6 of 10
NOTES
[1] AS OF 9/30/08 THE COMPANY WAS AUTHORIZED TO ISSUE 200,000,000 SHARES OF
COMMON STOCK.
[2] PALA (INCLUDING ITS SUBSIDIARIES) HAS AGREED TO THE LIMITATIONS ON
ITS EXERCISE OF ITS WARRANTS AND CONVERSION OF ITS LOANS AS SET
FORTH IN SECTION 6.4 OF THIS AMENDMENT.
[3] CANVASBACK HAS AGREED TO FORBEAR ON EXERCISING ITS CONVERSION RIGHTS
PROVIDED BY ITS NOTE PURCHASE AGREEMENT DATED OCTOBER 17, 2006, AS
AMENDED, UNTIL SUCH TIME AS THE COMPANY EFFECTS THE SHARE INCREASE,
PROVIDED THAT THE COMPANY EFFECTS THE SHARE INCREASE BY NO LATER
THAN MARCH 1, 2009.
[4] THE XXXX CONVERTIBLE DEBENTURES ARE COMPRISED OF THREE SEPARATE
DEBENTURES WITH A WEIGHTED AVERAGE CONVERSION PRICE OF APPROXIMATELY
$0.132 PER SHARE. THE ACTUAL RATES ARE $0.20 FOR $105,030 OF
PRINCIPAL AND $0.12 FOR $300,000 AND $50,000 OF PRINCIPAL. THE
GISHES HAVE AGREED TO FORBEAR ON EXERCISING THEIR CONVERSION RIGHTS
UNDER THESE DEBENTURES UNTIL SUCH TIME AS THE SHARE INCREASE IS
EFFECTED, PROVIDED THAT THE COMPANY EFFECTS THE SHARE INCREASE BY NO
LATER THAN MARCH 1, 2009.
[5] INCLUDES SHARES OWED TO MELIOR CORP (A PALA SUBSIDIARY) UNDER THE
TERMS OF A MANAGEMENT SERVICES AGREEMENT DATED 8/20/08.
[6] INCLUDES ALL VESTED STOCK OPTIONS AND WARRANTS ISSUED AS OF 9/30/08.
[7] INCLUDES ALL STOCK OPTIONS GRANTED OR PROMISED, BUT UNVESTED AS
OF 9/30/08.
5.1.17 The Company needs to obtain a certificate of revival to reinstate its
qualification with the California Secretary of State to do business in the State
of California.
5.1.19 Schedule J included in the Original Debenture is not a current list of
our Intellectual Property. A list of our Intellectual Property as of the
Amendment Date is set forth below:
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 7 of 10
OFFICIAL NO. TITLE CASE STATUS COUNTRY PROPERTY TYPE
------------------------- -------------------------------------- ---------------------- ---------------------------- ----------
10/25053 ALDEROX KR7 Registered Australia Trademark
003775822 ALDEROX KR7 Registered European Community Trademark
1315205 ALDEROX KR7 Application filed India Trademark
719884 ALDEROX KR7 Registered New Zealand Trademark
3022028 ALDEROX KR7 Registered United States of America Trademark
1025054 ALDEROX TSR Registered Australia Trademark
003778156 ALDEROX TSR Registered European Community Trademark
1315206 ALDEROX TSR Application filed India Trademark
719883 ALDEROX TSR Registered Xxx Xxxxxxx Xxxxxxxxx
0000000 XXXXXXX Xxxxxxxxxx Xxxxxx Xxxxxx of America Trademark
2905208 ASA 12 Registered United States of America Trademark
3109303 B20-POWER Registered United States of America Trademark
1525270 Release Agent Formulas And Methods Abandoned by client European Patent Office Patent
2896/DELNP/2004 Release Agent Formulas And Methods Application filed India Patent
PA/a/2006/007233 Release Agent Formulas And Methods Application filed Mexico Patent
PCT/US04/05953 Release Agent Formulas And Methods Application filed Patent Cooperation Treaty Patent
6902606 Release Agent Formulas And Methods Issued United States of America Patent
Awaiting confirmation
from Foreign Associate Release Agent Formulas And Methods In Process United States of America Patent
Release Agent Formulas and Methods In Process Argentina Patent
Release Agent Formulas and Methods In Process Australia Patent
Release Agent Formulas and Methods In Process Brazil Patent
Release Agent Formulas and Methods In Process Canada Patent
2374-2008 Release Agent Formulas and Methods Pending Chile Patent
Awaiting confirmation
from Foreign Associate Release Agent Formulas and Methods In Process Europe Patent
Release Agent Formulas and Methods In Process India Patent
Release Agent Formulas and Methods In Process Japan Patent
Release Agent Formulas and Methods In Process Mexico Patent
Release Agent Formulas and Methods In Process New Zealand Patent
1415-2008 Release Agent Formulas and Methods Pending Peru Patent
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 8 of 10
5.1.29 The Collateral is subject to a security interest held by the Lender.
5.1.31 The mandatory internal controls required by the Sarbanes Oxley Act are
not in place and the Borrower management has not completed its assessment of its
internal controls over financial reporting as of June 30, 2008 as required by
SEC rules.
On October 9, 2008, the Borrower concluded, after consultation with its
independent registered public accounting firm and review of the pertinent facts,
that the previously issued financial statements contained in the Borrower's
Annual Report on Form 10-KSB for the year ended June 30, 2007 (the "Form
10-KSB") and the Quarterly Report on Form 10-QSB for the quarter ended September
30, 2007 (the "Form 10-QSB") should not be relied upon due to an error in those
financial statements related to the accounting for a beneficial conversion
feature ("BCF") on its convertible debt recorded during the quarter ended
September 30, 2007.
During the course of the financial statement audit for the year ended June 30,
2008, the Borrower identified an accounting error involving the beginning
balance of a BCF amount recorded for Canvasback Borrower Ltd. against additional
paid in capital that was addressed by the Borrower during the quarter ended
September 30, 2007 in a manner that is not consistent with the guidance provided
under Statement of Financial Accounting Standards ("SFAS") No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
Statement No. 3 ("SFAS 154"). Specifically, during the quarter ended September
30, 2007, the Borrower identified that Canvasback's debt balance at June 30,
2007 was understated by approximately $1.7 million with a corresponding equity
overstated by approximately $1.4 million with the remainder offset to interest
expense. To correct this accounting error, the Borrower, in discussion with its
independent registered accounting firm at the time, determined it was
appropriate to record the correcting adjustment in the quarter ended September
30, 2007 rather than restating the Form 10-KSB as of and for the year ended June
30, 2007 filed with the Securities and Exchange Commission ("SEC"). After
further evaluation of this matter and discussion with the Borrower's present
independent registered accounting firm, the Borrower now believes that the
adjustment recorded during the quarter ended September 30, 2007 was not
consistent with guidance under SFAS 154. The Borrower believes it should have
recorded the adjustment in the prior fiscal year as of and ended June 30, 2007
due to the material nature of the adjustment and restated the June 30, 2007 Form
10-KSB filed with the SEC.
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 9 of 10
Therefore, the Borrower will restate the financial statements for the year ended
June 30, 2007 to record the adjustment in the proper period. Similarly, the
financial statements for the quarter ended September 30, 2007 will be restated
to reverse the adjustment recorded in that period. These restated financial
statements will be included, respectively, in amendments to the Form 10-KSB and
Form 10-QSB in the near future.
The Borrower noted that the correction is a non-cash adjustment which was
recorded in the wrong reporting period. Financial statements filed with the SEC
subsequent to September 30, 2007 are properly stated.
The Borrower is in the process of preparing a Form 8-K with the SEC to report
this matter under Item 4.02, Non-reliance on Previously Issued Financial
Statements.
5.1.32 The assertions made by the Lender relating to the Borrower's compliance
and related issues may materially adversely affect the assets, capital,
liabilities, affairs, business, prospects, operations or condition of the
Borrower or the ability of the Borrower to perform its obligations under the
Original Debenture, as amended.
AMENDMENT AND LIMITED WAIVER
October 10, 2008
Page 10 of 10
